Talk about ambitious! With the support of top management, Tony Brown has his global purchasing organization re-energizing the Ford Motor Co. supply chain into a leaner team of manufacturing materials providers. The vice president of global purchasing's ultimate goal is to slice suppliers from 2,500 to 1,000 and to halve the annual costs of materials procurement and internal distribution.

“We want to operate a supply chain management system that delivers on the dimensions of quality, technology, delivery and cost, while executing programs in a disciplined fashion with faster time-to-market,” Brown says.

Ford's much-publicized “Way Forward” plan is all about doing more with less by closing 14 plants and cutting up to 30,000 factory jobs in North America. It's a comprehensive plan to restore profitability to its automotive business in North America no later than 2008. “We will apply lessons learned from consumers and the company's successes around the world to strengthen the Ford, Lincoln and Mercury brands,” says Mark Fields, executive vice president and president of Ford, The Americas. His plan is to reduce product development times by six to 12 months and to convert most North American assembly plants into flexible manufacturing operations that are supported by various innovative new-product development and purchasing systems.

The Way Forward plan has some “painful” job cuts and plant closings, according to Fields, but he insists that's not the heart of the program. “We can't cut our way to growth. We have to innovate. That means innovating under the hood—in design, in quality, in safety, in environmental impact and in production.”

And that's where purchasing fits in: A less-publicized but key component of the Way Forward corporate restructuring is the Aligned Business Framework supply chain project. The plan is for company-wide material cost reductions of at least $6 billion by 2010. The project will cut in half the number of global suppliers but will reward those that remain with long-term supply deals, giving them early access to product-development programs and hopefully improved profitability, says Brown, who wants “a kinder, gentler era of cooperation from global suppliers that can be implemented beyond North America.”

That's why the Dearborn, Mich.-based automaker's eight manufacturing groups—Ford, Lincoln, Mercury, Mazda, Volvo, Jaguar, Land Rover and Aston Martin—all are involved in the purchasing and supply chain reorganization that fosters a spirit of cooperation instead of confrontation. The procurement organization already has handpicked three dozen preferred suppliers in its initial effort to fine-tune the suppliers of 20 key parts such as seats, tires and bumpers that cost the automaker $35 billion/year. Brown's plan is to shrink the number of suppliers for those components to 100 from 200 by the 2008 and 2009 model years.

Overall, Ford purchases around $70 billion dollars annually of production parts from more than 2,500 suppliers worldwide. However, Ford had a purchasing culture that encouraged leaning on suppliers for annual price cuts. The automaker reinforced this behavior through a system of employee evaluations and bonuses for cost reductions. Executives now admit that contentious relationships with suppliers really didn't reduce costs sufficiently for manufacturing materials.

This fact hasn't been lost on Brown, who says: “We have had a problem with the business model in this industry. It is not working effectively for our suppliers. It is not working effectively for us.” He adds: “When my day is dominated by issues related to financially distressed suppliers, commodity price shocks, quality problems and cost issues, it's clear to me that there must be a better approach.”

So, he is championing the Aligned Business Framework, a best practices approach of partnering with suppliers to cut costs. “It's an environment between Ford and a select family of suppliers where innovative ideas can emerge, and then be incubated, evaluated and incorporated into our products,” he says.

And he has some powerful internal allies. Anne Stevens, executive vice president and COO of Ford, The Americas, says “We are committed to developing strong relationships with a select group of more capable, more financially stable strategic suppliers on a long-term basis. Strong suppliers and proven processes that everyone sticks to religiously go hand in hand with delivering innovation, quality and lower costs.”

And Fields says, “To ensure an environment of openness in our supplier relationships, we will maintain high standards wherever we operate, be an honest partner to our suppliers and assist them to pursue and maintain high standards. By rationalizing our supply base so that we're working with fewer, more capable, more financially stable suppliers on a long-term basis, quality and warranty performance should improve, technology innovations increase, and costs decrease.”

The new supply chain excellence system also will expand two-in-a-box “matched pairs” of purchasing and engineering managers who will work with preferred suppliers to improve sourcing and delivery. For example, Andrew Hinkly, executive director, production purchasing operations, Ford, The Americas, and Randy Visintainer, executive director, body and chassis engineering, Ford Motor, recently explained at an industry meeting how this system works.

While one executive was developing a greater understanding of the drivers behind supplier issues, the other was examining cost estimating and material recovery processes to improve relationships. The pair then merged their data to improve internal knowledge, and then shared it with preferred suppliers to develop trust and partnerships. The goal is that the automaker's buying and product design teams later would benefit from some of the supply base's premium technology.

The Aligned Business Framework program also will be adopting some supplier-relations projects (some of them championed earlier by Volvo Cars), which include intensified annual reviews of commodity suppliers, which are made available to all car making organizations; a supplier evaluation system of 11 financial and nonfinancial metrics by which potential suppliers can be judged by buyers; a five-year supplier training plan that will provides a basis for ongoing cooperation in areas of corporate social responsibility.

Automotive analysts suggest that, if successfully executed, this new Aligned Business Framework policy creates a win-win situation: Ford obtains cost cuts and the suppliers' cutting-edge technology, and suppliers get long-term commitments that will enable better forecasting and planning. That's why Ford will share more parts and systems, such as brakes, suspension and underbody components, across its North American, European and Asian brands to leverage corporate global purchasing power for lower costs and better quality.

In the new Aligned Business Framework agreements with these preferred suppliers, Ford is promising more collaborative relationships marked by longer-term agreements, greater sourcing volume, and upfront payments for engineering and development work. “Suppliers selected for the plan will be those identified as technically innovative and committed to quality, cost and delivery goals,” Brown says. “This move will benefit suppliers by consolidating more purchasing with each supplier, permitting them to better utilize their production capacity.”

According to reports by various automotive industry analysts, the new sourcing initiatives represent a radical departure from Ford's recent strategy toward suppliers, which has emphasized short-term contracts and annual price reductions. That approach has proven to be costly, because it has driven key suppliers into financial distress. Ford recently had to spend billions of dollars to bail out Visteon, a key parts supplier that was spun off from Ford in the 1990s, and Collins & Aikman, another key supplier.

The Aligned Business Framework is “a new relationship model with suppliers,” says a report by Pricewaterhouse Coopers, and is intended to allow key suppliers to maintain profitability and stabilize the automaker's supply chain. By consolidating its purchases and offering longer-term agreements, the buyers expect suppliers to recover manufacturing investments quicker and to operate in a more predictable business environment. Global competitiveness will not be sacrificed, however, as Ford will benchmark worldwide commodity prices and suppliers will be expected to adjust their own supply and manufacturing networks to ensure that Ford's costs are in line with those of competitors.

Pricewaterhouse Coopers says the Aligned Business Framework “is a crucial element in Ford's global program to return to predictable and continuous profitability.” That's why the framework includes long-term agreements formally specifying business practices that will increase buyer-supplier collaboration. “Ford will involve suppliers early in product development and will share product plans and forecasts for future production volumes,” according to the Pricewaterhouse Coopers analysis. “Suppliers will be offered some payment up-front for engineering and development costs and should also realize cost savings.